(Bloomberg) -- Congratulations, seniors. You made it. Not yet through high school, but through that even more arduous process known as college admissions, culminating in a stack of acceptance and rejection letters each spring.
No one should have to go through that. In the decade ahead, there's hope for a less brutal process.
An uneasy economic reality will soon set in at universities. Even as acceptance rates at elite schools like Harvard plunge to all-time lows, demographic and labor-market forces are working against higher education. If the higher ed story of the 2010s was about harried students applying to a dozen or more universities, the higher ed story of the 2020s might be universities scrambling to fill seats.
It took decades to get to the point where ambitious students were applying to more than a handful of colleges. First there was the general rise in higher education enrollment. Then the large millennial generation started going through college, beginning around the year 2000 and starting to taper off now. Those unlucky graduates faced the great recession and its aftermath -- beginning their working years with crippling student debt, acquired because higher education was increasingly seen as essential to a career.
But things are changing. Most of the growth in higher education enrollment is behind us. (Should colleges close? My Bloomberg Opinion colleague Noah Smith and I have pondered the question.) And with the millennial generation aging out of their college years, the number of high school graduates is beginning to shrink, particularly in the Midwest and the Northeast, regions with aging demographics. Fewer high school graduates means fewer college students.
This will be a full-blown crisis for some types of institutions, as the recent book "Demographics and the Demand for Higher Education" makes clear. Birthrates in the U.S. began to fall in 2008 because of the great recession, and in 2026 that diminutive recession cohort will start turning 18. Colleges whose business model has been built on growth will be hurting. In the five years beginning in 2026, the number of college-aged students will drop 15 percent.
The crunch will be particularly severe for schools in the Midwest and Northeast that draw a disproportionate number of their students from those regions. For instance, the book points out that 40 percent of Bates College and Bowdoin College students hail from New England, where demand for elite higher education is projected to fall 15 percent. If 2026 sounds a long way off, it's really not: This fall's incoming freshmen are the class of 2022.
Demographic realities are already making it a challenge for private colleges to fill seats, leading to them offer higher and higher discounts to ensure full classes. Perhaps the Harvards of the world are still overflowing with applications from students who treat them as a form of lottery ticket, but soon, for most college-bound students, applying to a handful of colleges will suffice.
Adding to higher ed's looming demographic problem is a labor market that, also for demographic reasons, is likely to be structurally tight for a decade or more. Baby boomers will be turning 65 in large numbers for another decade, and rapidly exiting the workforce. Already, the unemployment rate for people age 20 to 24 is at its lowest level in almost 50 years. For some who now choose to pursue college, the lure of a tight labor market might lead them to get a job instead. It's hard to argue against the prospect of starting a career sooner and with zero debt. The labor-force-participation rate for people age 20 to 24 rose in March to its highest level since 2009, suggesting that young people are beginning to see this economic logic.
Fast forward five or 10 years. The 18-year-olds of those years will not even remember when jobs were scarce and college seemed like a prerequisite to a middle-class life. Many will graduate high school and go straight to work, where employers have desperate need for them in fields like construction and health care, where perhaps employers or government could subsidize on-the-job training. That means fewer students applying to college, and less competition for those who do apply.
All of this will be painful for institutions of higher ed, but just the opposite for people who want to go to college. Application season should be far less stressful. (Should we rename it "recruiting season"?) And mailboxes each spring will bulge with acceptance letters.
In the New York Times noted that between the percentage of students applying to at least seven colleges increased to percent from 9percent.
If there's a huge increase in immigration, that would change the forecast. Just as a huge increase in students from abroad could stave off the crisis for many colleges.
©2018 Bloomberg L.P.